Funding Public Goods, Next Steps (Part 2)

This is the second part in clr.fund’s introductory series of posts. In the first part, we explained how clr.fund will use MACI for collusion resistance.

We've been applying for a few grants recently. One comment we received caught us a little off guard: "I'm still not convinced quadratic funding is a better way to allocate capital than what we have in place. Sometimes one person is better and more efficient at making decisions than many."

Stepping back, we realize this is an issue worth spending more time on. Is quadratic funding (QF) a better option for allocating capital to Ethereum's public goods? We think so, and for those who aren't yet convinced, here's why.

Quadratic funding claims to “allow (near) optimal provision of a decentralized, self-organizing ecosystem of public goods.” In other words, quadratic funding helps more deserving projects get more funding; it makes better decisions on how funds should be allocated and amplifies the impact of all contributors.

Why Quadratic Funding?

To explain why quadratic funding systems are worth building, we need to answer two questions:

Question 1:

Why would I prefer giving to a QF matching pool over spending my money directly on what I want?

First, let’s assume that you are giving to a matching pool that funds public goods for a community you care about, such that any public goods that serve that community benefit me. Given that, you might prefer contributing to a QF matching pool, because:

It saves me time
Performing due diligence to decide exactly where to allocate funding is time consuming, whether you are an individual or a group. QF matching pool saves you that time and effort by crowd-sourcing the decision on how to best allocate the your funds.

It incentivizes additional funding
The larger the matching pool, the more that each individual's contributions to projects will be amplified. Thus incentivizing more contributions to projects. Donating to the matching pool means more funds will be raised overall by the quadratic funding round.

It often puts my money to better use
No matter how carefully I choose projects to support, I am limited to my own perspective, and I may miss key information that the community would pick out. As stated in a recent Ethereum Foundation blog: “frankly, our team will always have blindspots in what we lead on — this is something that no organization can overcome on its own.” Quadratic funding overcomes this shortcoming by allowing the entire community to express their preference on how to distribute funds.

Quadratic funding protocols, like clr.fund, fall within “Type D” of the Ethereum Foundation’s funding layer cake; they help further decentralize the allocation process of existing funding pools.

Question 2

Why would I prefer giving to individual projects in quadratic funding over giving to projects directly?

The answer here is straightforward: the impact of my contribution is amplified by the funding pool, so the project I’m contributing to gets more money when I contribute to their QF campaign than if I give directly.

Conclusion

So, why should a next-generation public goods funding protocol use quadratic funding? Because it generates more funding for valuable public goods. The protocol ensures valuable public goods are funded by distributing more funding to projects preferred by more people, and it brings increased funding through the incentives it provides to both matching-pool contributors and main-round contributors, both of whom can often get more from their money in quadratic funding than they do funding things independently.

This is why we are building clr.fund, a protocol for decentralized quadratic funding.

If you want to help make clr.fund a reality, and earn a share of our grant funding, we welcome both tech and non-tech contributions. Swing by our Telegram group to learn more.